United Parcel Service Inc. felt the squeeze from tighter profit margins as a surge in spending to cope with exploding e-commerce has yet to translate to the promised cost savings.

• Adjusted profit margin of 10.5 per cent slipped 2.2 percentage points from a year earlier. The company maintained its 2018 earnings per share forecast in the range of US$7.03 to US$7.37, according to a statement Wednesday.

Key Insights

-Margins were weaker in UPS’s domestic unit, where it’s absorbing most of the costs from the network improvement.

-Eroding margins show UPS’s challenge in answering the existential question of whether it can maintain profitability while handling a rising number of higher-cost residential deliveries.

-To deal with the holiday rush, UPS has added sorting capacity of 400,000 parcels an hour in automated facilities that are up to 35 more efficient than older ones. The company has also brought on nine additional large aircraft, including six Boeing 747 jumbo jets, to handle more international volume.

Market Reaction

-The shares fell 1.9 per cent to US$112.12 in New York before regular trading. UPS fell 4.1 per cent this year through Tuesday, compared with a 2.5 per cent advance for the S&P 500 index.

-The company reported third-quarter adjusted earnings per share that matched analysts’ expectations of $1.82.